Berkshire Hathawayhttp://www.businessinsider.com/category/berkshire-hathaway
en-usTue, 03 Mar 2015 14:58:19 -0500Tue, 03 Mar 2015 14:58:19 -0500The latest news on Berkshire Hathaway from Business Insiderhttp://static3.businessinsider.com/assets/images/bilogo-250x36-wide-rev.pngBusiness Insiderhttp://www.businessinsider.com
http://www.businessinsider.com/warren-buffett-on-investing-in-ceos-2015-2Warren Buffett has a warning for people investing in a company because they love its CEO (BRKA, BRKB, AAPL)http://www.businessinsider.com/warren-buffett-on-investing-in-ceos-2015-2
Tue, 03 Mar 2015 13:39:06 -0500Myles Udland
<p><img style="float:right;" src="http://static2.businessinsider.com/image/54f5ec4a6da8110966df0cf6-1200-924/buffett-gates-buds-8.jpg" border="0" alt="buffett gates buds"></p><p>"More Jimmy Lings will appear."</p>
<p>This is Warren Buffett's warning from his <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">50th letter to Berkshire Hathaway shareholders</a> that investors who hang too closely on the word or vision — but not results — of any one executive may find themselves one day disappointed.&nbsp;</p>
<p>In his letter, Buffett tells the story of Jimmy Ling, the CEO of LTV who in the 60s took LTV from a company with $36 million in sales to number 14 on the Fortune 500 two years later.&nbsp;</p>
<p>Buffett writes:</p>
<p style="padding-left: 60px;">Ling’s strategy, which he labeled "project redeployment," was to buy a large company and then partially&nbsp;spin off its various divisions. In LTV’s 1966 annual report, he explained the magic that would follow: <strong>"Most&nbsp;importantly, acquisitions must meet the test of the 2 plus 2 equals 5 (or 6) formula." The press, the public and Wall&nbsp;Street loved this sort of talk.</strong></p>
<p style="padding-left: 60px;">In 1967 Ling bought Wilson &amp; Co., a huge meatpacker that also had interests in golf equipment and&nbsp;pharmaceuticals. Soon after, he split the parent into three businesses, Wilson &amp; Co. (meatpacking), Wilson Sporting&nbsp;Goods and Wilson Pharmaceuticals, each of which was to be partially spun off. These companies quickly became&nbsp;known on Wall Street as Meatball, Golf Ball and Goof Ball.</p>
<p style="padding-left: 60px;"><strong>Soon thereafter, it became clear that, like Icarus, Ling had flown too close to the sun. By the early 1970s,&nbsp;Ling’s empire was melting, and he himself had been spun off from LTV ... that is, <em>fired</em>.</strong></p>
<p>Buffett's lesson here is not that today's investors need to avoid conglomerates.</p>
<p>(In fact, Buffett notes that Berkshire is one of the only major conglomerates left and <a href="http://www.businessinsider.com/warren-buffett-on-conglomerates-and-private-equity-2015-2">defends the structure here</a>. Well, <a href="https://twitter.com/EpicureanDeal/status/572791728098414592">and he sort of has to</a>.)</p>
<p>What Buffett is advising is that investors remain cautious of situations where the word of an executive becomes something that seeks to talk past what the numbers might be telling you. &nbsp;</p>
<p>Buffett adds:</p>
<p style="padding-left: 60px;">Periodically, financial markets will become divorced from reality — you can count on that. <strong>More Jimmy&nbsp;Lings will appear.</strong> They will look and sound authoritative. The press will hang on their every word. Bankers will&nbsp;fight for their business. What they are saying will recently have "worked." Their early followers will be feeling very&nbsp;clever. <strong>Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you&nbsp;how old-fashioned that math is — zip up your wallet, take a vacation and come back in a few years to buy stocks at&nbsp;cheap prices.</strong></p>
<p>Of course, Buffett mentions no companies by name. And it's unclear if he really has specific companies in mind. What he's interested in cautioning investors about here are situations in which a company or a stock starts to look a bit too good to be true.&nbsp;</p>
<p>Because it probably is.&nbsp;</p>
<p>And what Buffett would likely say to folks looking for the next Steve Jobs is that a good CEO is important to make a great company, but don't overthink it: if you buy good businesses at good prices, <a href="http://www.businessinsider.com/warren-buffett-graham-and-doddsville-lecture-2014-8">you will be a successful investor</a>.&nbsp;</p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/elon-musk-key-man-risk-2015-2" >Tesla's investors need to ask themselves how they'd feel if Elon Musk left the company</a></strong></p>
<p><a href="http://www.businessinsider.com/warren-buffett-on-investing-in-ceos-2015-2#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/warren-buffett-on-america-2015-2Buffett on the US: 'The treasures that have been uncovered up to now are dwarfed by those still untapped' (BRKB, BRKA)http://www.businessinsider.com/warren-buffett-on-america-2015-2
Mon, 02 Mar 2015 18:35:00 -0500Myles Udland
<p><img style="float:right;" src="http://static4.businessinsider.com/image/54f1c0926da811fc0c3b1ae4-1200-924/warren-buffett-obama-2.jpg" alt="warren buffett obama" border="0"></p><p>Warren Buffett's 50th annual letter to Berkshire Hathaway shareholders is out.&nbsp;</p>
<p>And boy is he bullish on America.&nbsp;</p>
<p>Here's Buffett:</p>
<p style="padding-left: 60px;"><strong>Though we will always&nbsp;invest abroad as well, the mother lode of opportunities runs through America. The treasures that have been&nbsp;uncovered up to now are dwarfed by those still untapped. Through dumb luck, Charlie and I were born in&nbsp;the United States, and we are forever grateful for the staggering advantages this accident of birth has given us.</strong></p>
<p>Buffett also talks a bit about his 2009 acquisition of BNSF, which Buffett called at the time an "all-in wager on the economic future of the United States."</p>
<p>"Indeed, who has ever benefited during the past 238 years by betting&nbsp;<em>against</em> America?" Buffett wrote.&nbsp;</p>
<p>Adding:</p>
<p style="padding-left: 60px;"><strong>If you compare our&nbsp;country’s present condition to that existing in 1776, you have to rub your eyes in wonder.</strong> <strong>In my lifetime alone, real&nbsp;per-capita U.S. output has sextupled.</strong> My parents could not have dreamed in 1930 of the world their son would see.&nbsp;Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to&nbsp;emigrate (though I can think of a few for whom I would happily buy a one-way ticket).</p>
<p><span style="line-height: 1.5em;">In his letter, Buffett said that Berkshire's subsidiaries spent a combined $15 billion on plant and equipment in 2014, with 90% of that investment happening in the US.&nbsp;</span></p>
<p>And as Buffett sees it, why would he want to invest anywhere else?</p>
<p><a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">Read more coverage of Buffett's letter from Business Insider here »</a></p>
<p><a href="http://www.berkshirehathaway.com/letters/2014ltr.pdf">And read Buffett's letter here »</a></p><p><a href="http://www.businessinsider.com/warren-buffett-on-america-2015-2#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/nationwide-insurance-industry-loss-ratio-2015-2">Nationwide's Super Bowl commercial about dead children is about corporate profits ... in a way that we can all appreciate</a></p> http://www.businessinsider.com/warren-buffett-berkshire-hathaway-vs-sp-500-2015-3Here's how badly Warren Buffett beat the markethttp://www.businessinsider.com/warren-buffett-berkshire-hathaway-vs-sp-500-2015-3
Mon, 02 Mar 2015 16:39:21 -0500Andy Kiersz
<p>Warren Buffett has beaten the market to such an extreme degree that comparing his success to everyone else can't be done using a normal line chart.</p>
<p>In his <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">50th annual letter to Berkshire Hathaway stockholders</a>, Warren Buffett included a table showing how the price of the company's stock has changed since he took over in 1964. Business Insider compared those numbers to the <a href="http://finance.yahoo.com/q/hp?s=%5EGSPC&amp;a=00&amp;b=3&amp;c=1964&amp;d=02&amp;e=2&amp;f=2015&amp;g=d">performance of the S&amp;P 500</a> over the last half century.</p>
<p>Berkshire Hathaway's stock price increased by a mind-blowing 1,800,000% between 1964 and 2014. The S&amp;P 500, on the other hand, increased by "only" about 2,300% over that time.</p>
<p>Here's a chart showing the evolution of both Berkshire Hathaway's stock price and the S&amp;P 500. Berkshire outperformed the broader stock market by so much that the only way to meaningfully compare the two is on a logarithmic scale, in which the vertical axis represents powers of ten:</p>
<p><img src="http://static4.businessinsider.com/image/54f4cd60ecad0423157c881b-1200-924/good-index-comp-final.png" alt="good index comp final" border="0"></p>
<p>Another way to look at Buffett's superhuman investing powers is to compare annual growth rates of Berkshire stock and the broader stock market. Since year to year changes are extremely noisy and volatile, we made a chart showing the five-year moving average annual price returns for both Berkshire's stock and the S&amp;P 500 since Buffett's takeover:</p>
<p><img src="http://static1.businessinsider.com/image/54f4ceff6da811a6291805b9-1200-924/good-5yrma-final.png" alt="good 5yrma final" border="0"></p>
<p>Through the end of the 20th century, Buffett handily outperformed equities as a whole. Since 1999, he's still tended to beat the market, but by a more modest amount.</p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/warren-buffett-berkshire-hathaway-historical-returns-2015-3" >Here's how rich you'd be if you had bet $1,000 on Warren Buffett way back when</a></strong></p>
<p><a href="http://www.businessinsider.com/warren-buffett-berkshire-hathaway-vs-sp-500-2015-3#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/nationwide-insurance-industry-loss-ratio-2015-2">Nationwide's Super Bowl commercial about dead children is about corporate profits ... in a way that we can all appreciate</a></p> http://www.businessinsider.com/buffett-increased-stake-in-american-express-2015-3American Express had a terrible 6 months, and it was great for Warren Buffett (AXP, BRKA, BRKB, IBM, KO)http://www.businessinsider.com/buffett-increased-stake-in-american-express-2015-3
Mon, 02 Mar 2015 15:31:00 -0500Akin Oyedele
<p><img style="float:right;" src="http://static5.businessinsider.com/image/54d88a44ecad042759e404d1-600-/seinfeld-american-express-apple-pay.png" border="0" alt="seinfeld american express apple pay" width="600"></p><p>As an American Express shareholder, the last six months have been perfect for Warren Buffett.</p>
<p>In his <a href="http://www.businessinsider.com/warren-buffett-on-cnbc-march-2-2015-3">interview with CNBC Monday morning</a>, Buffett said he is "not happy" when a stock price increases because it becomes more expensive for him to buy an additional stake in the company.</p>
<p>Alternatively, when the price of a stock Buffett owns falls, he can less expensively increase his stake in a company.</p>
<p>And what makes a falling share price even better is when a company repurchases its own stock, thereby reducing the shares outstanding and increasing Buffett's stake.</p>
<p>And so not only are American Express shares down about 8% in the last six months, but the company has been repurchasing its own stock. This saw <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">Buffett's stake in AmEx</a> increase to 14.8% in 2014 from 14.2% the year before as the company repurchased $4.4 billion of its own shares.</p>
<p>Buffett's ownership of Coca-Cola and IBM also rose through share buybacks in 2014.</p>
<p>So Buffett was able to get a bigger stake in the company at less of a cost than if Berkshire had bought more shares directly.</p>
<p>Buffett gave an idea of how much Berkshire's ownership of American Express increased, writing in his annual letter:</p>
<p style="padding-left: 30px;">If you think tenths of a percent aren’t important, ponder this math: For the four companies in aggregate, each increase of one-tenth of a percent in our ownership raises Berkshire’s portion of their annual earnings by $50 million.</p>
<p>Companies buy their own shares if they believe the price is undervalued, reducing the number of outstanding shares and potentially lifting their price.</p>
<p>What's more is that Buffett is bullish on AmEx (as well as Coke, IBM, and his final "big four" investment: Wells Fargo):</p>
<p style="padding-left: 30px;">These [big] four investees possess excellent businesses and are run by managers who are both talented and shareholder-oriented. <strong>At Berkshire, we much prefer owning a non-controlling but substantial portion of a wonderful company to owning 100% of a so-so business.</strong></p>
<p>Wall Street has disagreed of late on American Express. The stock has tumbled around 12% year-to-date as it <a href="http://www.businessinsider.com/costco-co-branding-agreement-with-visa-citi-2015-3">lost its Costco co-branding agreement to Citi and Visa</a>, lost a similar agreement with <a href="http://www.businessinsider.com/american-express-jetblue-ending-partnership-2015-2">JetBlue</a>, and lost an <a href="http://www.businessinsider.com/american-express-antitrust-suit-2015-2">anti-trust lawsuit.</a></p>
<p>But then again, Buffett would rather be able to buy the stock at a lower price if he wanted to than have to chase an increasing stock price of a business he liked.</p>
<p>And as he said on CNBC on Monday: Always have your own reasons for buying a stock.</p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/warren-buffett-advice-on-berkshire-hathaway-stock-2015-3#ixzz3TGAji5nA" >Warren Buffett tells investors what they must consider before betting on Berkshire Hathaway</a></strong></p>
<p><a href="http://www.businessinsider.com/buffett-increased-stake-in-american-express-2015-3#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/the-fine-brothers-on-youtube-react-2015-2">These brothers are making $5 million a year showing people react to things</a></p> http://www.businessinsider.com/warren-buffett-berkshire-hathaway-historical-returns-2015-3Here's how rich you'd be if you had bet $1,000 on Warren Buffett way back whenhttp://www.businessinsider.com/warren-buffett-berkshire-hathaway-historical-returns-2015-3
Mon, 02 Mar 2015 14:04:00 -0500Andy Kiersz
<p>This weekend, Warren Buffett released his <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">50th annual letter to Berkshire Hathaway shareholders</a>. Over that half-century, Buffett took the failing textile company and turned it into a legendary conglomerate.</p>
<p>Using historical price data for Berkshire Hathaway class A shares from <a href="http://www.scu.edu/business/finance/research/upload/buffett-hindsight-foresight-faj.pdf">a retrospective analysis of Buffett's outsized returns</a> and from <a href="http://finance.yahoo.com/q/hp?s=BRK-A">Yahoo! Finance</a>, we calculated how much $1,000 of Berkshire stock would be worth today if you invested that money at different times during Buffett's tenure.</p>
<p>That $1,000 invested in 1964, when Buffett took over the company and <a href="http://investing.answers.com/stocks/the-history-of-warren-buffets-berkshire-hathaway-stock-price">shares cost just $19</a>, would be worth about $11.6 million dollars today, based on the last available closing price of $221,180 on February 27. $1,000 invested in 1990 would be worth $33,136 today.</p>
<p>Here's a chart showing the current value of Berkshire Hathaway stock bought at different times in the last fifty years:</p>
<p><img src="http://static2.businessinsider.com/image/54f4ad8b6da8116e3f1805b7-1200-924/value-bar-linear-final.png" alt="value bar linear final" border="0"></p>
<p>Investing in the first couple decades of Buffett's stewardship would have lead $1,000 to grow to several million dollars by today. After about 1980 or so, those gains were much more modest, although still extremely impressive.</p>
<p>To get a better handle on the last thirty or so years of Berkshire Hathaway, here's the same chart using a <a href="http://en.wikipedia.org/wiki/Logarithmic_scale">logarithmic scale</a>, in which the vertical axis is incremented in powers of ten, making it easier to compare the large range of price returns we're looking at:</p>
<p><img src="http://static2.businessinsider.com/image/54f4ada4ecad04a2477c881b-1200-924/value-bar-log-final.png" alt="value bar log final" border="0"></p>
<p>Finally, here's a table showing the current value of $1,000 of Berkshire stock purchased in a given year:</p>
<p><img src="http://static3.businessinsider.com/image/54f48139eab8ea456c6d991b-454-685/table-final.png" alt="berkshire hathaway warren buffett table" border="0"></p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/warren-buffetts-100-billion-mistake-2015-2" >Here is Warren Buffett's $100 billion mistake</a></strong></p>
<p><a href="http://www.businessinsider.com/warren-buffett-berkshire-hathaway-historical-returns-2015-3#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/nationwide-insurance-industry-loss-ratio-2015-2">Nationwide's Super Bowl commercial about dead children is about corporate profits ... in a way that we can all appreciate</a></p> http://www.businessinsider.com/warren-buffett-advice-on-berkshire-hathaway-stock-2015-3Warren Buffett tells investors what they must consider before betting on Berkshire Hathaway (BRKA, BRKB)http://www.businessinsider.com/warren-buffett-advice-on-berkshire-hathaway-stock-2015-3
Mon, 02 Mar 2015 13:31:54 -0500Akin Oyedele
<p><img style="float:right;" src="http://static3.businessinsider.com/image/542d3dd06bb3f7b9707c71df-600-/warren-buffet-berkshire-hathaway-portrait-illustration-1.jpg" border="0" alt="Warren Buffet Berkshire Hathaway Portrait Illustration" width="600"></p><p>This is probably how you should think about buying any stock.</p>
<p>In his 50th <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">annual letter to shareholders</a>, Berkshire Hathaway chairman Warren Buffett spoke about the company's next 50 years.</p>
<p>He's confident that Berkshire won't experience major financial problems and that the company's value will continue to grow over time.</p>
<p>Buffett also had some advice for investors that want to buy into the company.</p>
<p>Here's what Buffett would like investors to consider before buying Berkshire stock:</p>
<ul>
<li><strong>Don't buy the stock if the price is too high.</strong> He writes: "If an investor’s entry point into Berkshire stock is unusually high – at a price, say, approaching double book value, which Berkshire shares have occasionally reached – it may well be many years before the investor can realize a profit." If the price is slightly above the level at which Berkshire would repurchase its shares, then investors should profit "within a reasonable period of time."</li>
<li><strong>If your plan is to sell the stock within two years of buying, Buffett says you're on your own.</strong> That's because your returns would depend more on how the broader stock market performs than on the value of your Berkshire shares within that short period. "Since I know of no way to reliably predict market movements, I recommend that you purchase Berkshire shares only if you expect to hold them for at least five years," he writes. <strong>"Those who seek short-term profits should look elsewhere."</strong></li>
<li><strong>Berkshire shares should not be bought with leverage.</strong> No one knows when the next big market crash will happen, and since 1965, stocks have fallen more than 50% from their top three times. Whenever something similar happens again, Buffett says Berkshire shareholders should be mostly fine, but it will be "disastrous" for speculators using borrowed money.</li>
</ul>
<p><span>Berkshire's Class A shares, at over $220,000 a piece, are the priciest in the world. The more-affordable Class B shares were trading little changed at around $146 per share on Monday afternoon.</span></p>
<p>So, even though <a href="http://www.businessinsider.com/warren-buffetts-investing-strategy-2013-12#ixzz3TFcUiHrK">you'll never invest like Buffett</a>, these are his tips for maybe profiting from his company.</p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/warren-buffetts-investing-quotes-2014-8?op=1#ixzz3TFdJ8ZDQ" >Warren Buffett's 23 Most Brilliant Insights About Investing</a></strong></p>
<p><a href="http://www.businessinsider.com/warren-buffett-advice-on-berkshire-hathaway-stock-2015-3#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/daymond-john-shark-tank-clothes-impression-success-2015-2">'Shark Tank' investor explains how to make a great first impression</a></p> http://www.businessinsider.com/buffett-you-must-be-willing-to-walk-away-2015-3One of the best things about Warren Buffett is that he's not afraid to let things diehttp://www.businessinsider.com/buffett-you-must-be-willing-to-walk-away-2015-3
Mon, 02 Mar 2015 11:39:38 -0500Joshua Brown
<p><img style="float:right;" src="http://static6.businessinsider.com/image/54f491e46da8116b621805b9-1200-924/warren-buffett-iscar-metalworking-1.jpg" border="0" alt="warren buffett Iscar Metalworking"></p><p>I’m poring over the just-release 2014 annual letter to Berkshire Hathaway shareholders today and, as usual, I’m finding nuggets of wisdom on every single page.</p>
<p>One really interesting bit I wanted to pass on concerns a crucial benefit that their conglomerate structure offers. In countering the idea that Berkshire should break itself up or spin off some businesses to “unlock shareholder value”, Warren Buffett explains a key advantage that his collection of companies offers – beyond the obvious ability to self-fund.</p>
<p>He reminds his shareholders that being able to channel capital across opportunities and be willing to walk away from a dying industry is critical to the corporation’s longevity. He laments the twenty years between 1965 and 1985 that he allowed the legacy New England textile assets to decay before finally pulling the plug. He talks about the conflicts that a more singularly-focused corporation might have when its central line of business goes into secular decline.</p>
<p style="padding-left: 30px;"><em>One of the heralded virtues of capitalism is that it efficiently allocates funds. The argument is that markets will direct investment to promising businesses and deny it to those destined to wither. That is true: With all its excesses, market-driven allocation of capital is usually far superior to any alternative. Nevertheless, there are often obstacles to the rational movement of capital. As those 1954 Berkshire minutes made clear, capital withdrawals within the textile industry that should have been obvious were delayed for decades because of the vain hopes and self-interest of managements. Indeed, I myself delayed abandoning our obsolete textile mills for far too long. A CEO with capital employed in a declining operation seldom elects to massively redeploy that capital into unrelated activities. A move of that kind would usually require that long-time associates be fired and mistakes be admitted. Moreover, it’s unlikely that CEO would be the manager you would wish to handle the redeployment job even if he or she was inclined to undertake it…</em></p>
<p style="padding-left: 30px;"><em>…At Berkshire, we can – without incurring taxes or much in the way of other costs – move huge sums from businesses that have limited opportunities for incremental investment to other sectors with greater promise. Moreover, we are free of historical biases created by lifelong association with a given industry and are not subject to pressures from colleagues having a vested interest in maintaining the status quo. That’s important: If horses had controlled investment decisions, there would have been no auto industry.</em></p>
<p>Most companies cannot kill their once-golden goose business and reallocate elsewhere. Even the suggestion of something so bold would typically engender a response like “But, <em>this</em> is what we do!” And they’d be right. The reticence to make big changes is only the half of it – there are also the considerations involved with a given CEO’s capabilities outside of a core industry and the high costs that need to be incurred in order to make such a radical shift happen. The hurdles for a company – let alone a public company with outspoken shareholders – being able to pull this off are extremely high. With his conglomerate status and diversified earnings streams to command, Buffett can move decisively toward better opportunities and turn his back on those ventures whose best days are behind them.</p>
<p>Berkshire’s ability (willingness?) to kill and refocus is legendary and extremely rare.</p>
<p>Find some time to read the entire letter. It’s time extremely well spent.</p>
<p><a href="http://www.berkshirehathaway.com/letters/2014ltr.pdf">Berkshire Hathaway’s 2014 Annual Letter to Shareholders</a></p><p><a href="http://www.businessinsider.com/buffett-you-must-be-willing-to-walk-away-2015-3#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/iphone-headphones-tricks-2015-2">14 things you didn't know your iPhone headphones could do</a></p> http://www.businessinsider.com/munger-on-buffetts-success-at-berkshire-2015-3Charlie Munger explains how Berkshire Hathaway has returned 1,826,163% under Warren Buffett (BRKA, BRKB)http://www.businessinsider.com/munger-on-buffetts-success-at-berkshire-2015-3
Mon, 02 Mar 2015 10:59:00 -0500Akin Oyedele
<p><img style="float:right;" src="http://static1.businessinsider.com/image/54f4844a6bb3f7614694bcd7-400-/warren-buffett-charles-munger.jpg" border="0" alt="warren buffett charles munger" width="400"></p><p></p>
<p>Berkshire Hathaway has seen a 1,826,163% return since 1965.</p>
<p>Vice chairman Charlie Munger used most of his section in the <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">company's annual letter published Saturday</a> to talk about why he thought the company had been <em>that</em> successful under Warren Buffett.</p>
<ol>
<li>First, good luck. In Buffett's section, he wrote about how they were both "forever grateful for the staggering advantages" provided by being born in America.</li>
<li>Beyond luck, Munger says, Buffett focused on doing a few things well and kept at it for 50 years. "Buffett was, in effect, using the winning method of the famous basketball coach, John Wooden, who won most regularly after he had learned to assign virtually all playing time to his seven best players. That way, opponents always faced his best players, instead of his second best. And, with the extra playing time, the best players improved more than was normal." Buffett copied this, putting great CEOs in charge of important subsidiaries for stretches of time.</li>
<li>This "Berkshire system" then began to attract more and even better subsidiaries and CEOs to the company. And the better subsidiaries and CEOs then required less attention from headquarters, creating what is often called a "virtuous circle," Munger writes. They have also become self-sufficient, meaning that when Buffett eventually leaves, Berkshire will not collapse.</li>
<li>How Berkshire built up its casualty insurance portfolio is also instructive. Munger recalls that Berkshire's insurance subsidiaries initially outperformed the S&amp;P 500. Berkshire's ginormous income tax later reversed this. But because Berkshire had built a system that allowed subsidiaries to flourish without the heavy-handedness of headquarters or a "department of acquisitions," Berkshire executive Ajit Jain could expand the insurance subsidiary.</li>
<li>Buffett was an extremely patient investor. "For instance, during his first ten years in control of Berkshire, Buffett saw one business (textiles) move close to death and two new businesses come in, for a net gain of one," Munger writes.</li>
</ol>
<p><span style="line-height: 22.5px;">Easy enough.&nbsp;</span></p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/warren-buffett-a-monumentally-stupid-decision-2015-2" >Warren Buffett made a 'monumentally stupid' decision over $0.125 in 1964</a></strong></p>
<p><a href="http://www.businessinsider.com/munger-on-buffetts-success-at-berkshire-2015-3#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/invest-warren-buffett-berkshire-hathaway-2015-2">How to invest like Warren Buffett</a></p> http://www.businessinsider.com/warren-buffett-on-cnbc-march-2-2015-3Warren Buffett tells CNBC that when a stock he owns goes up, he's unhappy (BRKA, BRKB)http://www.businessinsider.com/warren-buffett-on-cnbc-march-2-2015-3
Mon, 02 Mar 2015 08:36:00 -0500Myles Udland
<p><img style="float:right;" src="http://static2.businessinsider.com/image/54f44f5e69beddf024e84a71-1077-808/warren-buffett-53.png" border="0" alt="Warren Buffett"></p><p>CNBC's "Squawk Box" program is live this morning in Omaha, Nebraska to speak with Berkshire Hathaway CEO Warren Buffett.</p>
<p>On Saturday, <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">Buffett published</a> his 50th letter to Berkshire Hathaway shareholders on Saturday morning.&nbsp;</p>
<p>CNBC's Becky Quick asked Buffett about Berkshire's succession plan, specifically asking Buffett about Ajit Jain, who runs a number of Berkshire's reinsurance businesses.&nbsp;</p>
<p>Buffett told Quick that the company has a "precise plan" in mind to succeed him. "It wouldn't take 24 hours to implement," Buffett said, but added that this has been true for some time.</p>
<p>Buffett said that Jain and Greg Abel, who runs Berkshire's energy business, would both be important in a post-Buffett Berkshire, but said that is no jockeying between the two.</p>
<p>Of course, Buffett wouldn't say if either has been earmarked as the next CEO. (Quick asked Buffett about the two after <a href="http://www.wsj.com/articles/a-two-man-race-is-on-to-succeed-buffett-at-berkshire-1425259321">The Wall Street Journal ran this story</a>&nbsp;about the two on Monday.)</p>
<p>Talking a bit about Berkshire stock, Buffett said that "we don't have any idea" what Berkshire shares are going to do. "But we never have," Buffett said.&nbsp;</p>
<h2>Buffett on IBM</h2>
<p>On IBM, Buffett said he bought more because he likes it. Buffett said he wrote 5 years ago that the best thing to happen to IBM is if the stock did nothing for five years.&nbsp;</p>
<p><img class="float_left" src="http://static4.businessinsider.com/image/54f44f7969bedd7e24e84a6d-1115-836/warren-buffett-54.png" border="0" alt="Warren Buffett">Buffett said, broadly, that what he likes is when he buys a company stock and it does nothing. "If a stock goes up, I'm not happy," Buffett said. This is because when a stock price goes higher it is more expensive for Berkshire to acquire an additional stake in a company.</p>
<p>On IBM, Buffett said he expected revenue at the company to decline. "There have been no surprises at IBM since we started buying it," Buffett said, adding that the decline in the stock price has been a "pleasant surprise."</p>
<p>Buffett said that the cloud space, which IBM is making a big push into, is not a "winner take all" business, and Buffett said that if you ask some of America's biggest companies if they're doing a lot of business with IBM, the answer is and will likely continue to be "yes."</p>
<p>In response to a question about why someone would want to own IBM, Buffett said that you should own the stock — or any stock —only if you have reasons to own it and no other reason, adding that you particularly shouldn't own a stock because somebody else owns it.</p>
<p>Buffett said his cost basis on IBM is "probably" about $170 per share. IBM shares are currently trading near $161.&nbsp;</p>
<h2>Buffett on ExxonMobil and oil prices</h2>
<p>Buffett on his ExxonMobil stake: "We sold it all."</p>
<p>In the fourth quarter, Berkshire sold all of his take in the oil giant, and Buffett said that it's a great company but thought he could make better use of the cash he got for selling that stake. In the fourth quarter, ExxonMobil shares fell about 2%.&nbsp;</p>
<p>Buffett said that he has "no opinion" on what the price of oil is going to be in six months.&nbsp;</p>
<p>He again reiterated that he bought ExxonMobil stock not because of the price of oil, but because he thought it was an attractive investment, and sold his stake because he thought he could use his cash better somewhere else.</p>
<h2>On the Berkshire investment process</h2>
<p>On the Berkshire investment process, Buffett said that the Ted Weschler and Todd Combs, Berkshire's two investment managers, and Warren make their own investment decisions, and wouldn't necessarily know if they were buying the same stock.</p>
<p>Buffett said he gives them a "few things" they shouldn't buy because they violate a certain rule. For example, Berkshire can't buy much more Wells Fargo because it already own more than 9% of the company, and if it goes over 10%, it needs permission from the Fed.&nbsp;</p>
<p>But they are "free agents" in terms of what they're doing, Buffett said.&nbsp;</p>
<p>"We always see something that is swimming out there," Buffett said when asked about potential acquisition opportunities for the company.&nbsp;</p>
<p>In his annual letter, Buffett wrote: "Our lines are out." Clearly the fishing metaphor endures.&nbsp;</p>
<h2>On the economy</h2>
<p>Since the fall of 2009, the American economy has been coming back at a moderate pace, Buffett said.&nbsp;</p>
<p>"Sometimes it spurts faster, sometimes it falters. But it's been five and a half years and it keeps moving at a modest pace," Buffett said. <span style="line-height: 1.5em;">"It's consistently gotten better, and I think compared to the rest of the world we're doing pretty good," Buffett said.&nbsp;</span></p>
<p>Buffett added that 2% real growth is still "pretty good." And if this growth continues over a decade or more, then you've got a great generation of growth.&nbsp;</p>
<p>Buffett said he didn't know if 2% growth was the economy growth the US is fated to now, but said he'd be surprised if it was less than that.&nbsp;</p><p><a href="http://www.businessinsider.com/warren-buffett-on-cnbc-march-2-2015-3#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/invest-warren-buffett-berkshire-hathaway-2015-2">How to invest like Warren Buffett</a></p> http://www.businessinsider.com/buffett-on-berkshire-size-investment-2015-3Warren Buffett: I don't have the investment opportunities I used to (BRKA, BRKB)http://www.businessinsider.com/buffett-on-berkshire-size-investment-2015-3
Mon, 02 Mar 2015 07:08:00 -0500Myles Udland
<p><img style="float:right;" src="http://static3.businessinsider.com/image/54f4526eecad049c6c7c881e-959-719/warren-buffett-57.png" border="0" alt="Warren Buffett"></p><p>Warren Buffett is speaking with CNBC's Becky Quick after the release Saturday of his <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">50th letter</a> to Berkshire Hathaway shareholders.</p>
<p>Among the topics Buffett addressed was his current investing challenges and whether it was easier to invest 20 or 30 years ago.&nbsp;</p>
<p>In response, Buffett didn't say whether it was easier, but he said he now has a different investing problem: size.</p>
<p>"If we're going to buy 5% of a company," Buffett said, "to make that purchase worth 1% of Berkshire, it has to be a $2 billion company ... and if the stock doubles, Berkshire makes 0.5%."</p>
<p>In other words, the size of Berkshire makes the opportunities for Buffett to see a dramatic increase in his wealth, or the value for Berkshire Hathaway shareholders, more sparse.&nbsp;</p>
<p>Last week we highlighted comments that Buffett made 50 years ago about the <a href="http://www.businessinsider.com/warren-buffetts-100-billion-mistake-2015-2">size of the hedge fund he was then running</a>, which he worried was getting too big.&nbsp;</p>
<p>Berkshire is now a massive conglomerate with a market cap over $300 billion. So that problem certainly hasn't eased at all.&nbsp;</p>
<p><a href="http://www.businessinsider.com/warren-buffett-on-cnbc-march-2-2015-3">Follow our complete coverage of Buffett's conversation on CNBC here</a>.</p><p><a href="http://www.businessinsider.com/buffett-on-berkshire-size-investment-2015-3#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/warren-buffett-annual-letter-on-tesco-and-losses-cockroach-2015-3Warren Buffett thinks investing in Tesco is like living with an infestation of cockroacheshttp://www.businessinsider.com/warren-buffett-annual-letter-on-tesco-and-losses-cockroach-2015-3
Mon, 02 Mar 2015 06:46:30 -0500Lianna Brinded
<p><img style="float:right;" src="http://static2.businessinsider.com/image/5445682d6bb3f70c6a7d5fb5-1200-1715/ap111114116382.jpg" border="0" alt="warren buffett"></p><p>Legendary investor <a href="http://uk.businessinsider.com/warren-buffett-on-cnbc-march-2-2015-3">Warren Buffett doesn't mince his words</a>.</p>
<p>In his annual letter for his Berkshire Hathaway shareholders, released Saturday, Buffett revealed that he lost £288 million ($444 million) in the embattled British supermarket and <a href="http://www.berkshirehathaway.com/letters/2014ltr.pdf">he is "embarrassed" by taking too much time in exiting the beleaguered stock</a>.</p>
<p>Above all, his letter showed that he really hates Tesco and its management. Here is his comment in full, from page 17. on in the letter (emphasis ours):</p>
<p style="padding-left: 30px;">"Attentive readers will notice that Tesco, which last year appeared in the list of our largest common stock&nbsp;investments, is now absent. An attentive investor, <strong>I’m embarrassed to report</strong>, would have sold Tesco shares earlier. <strong>I&nbsp;made a big mistake with this investment by dawdling</strong>.</p>
<p style="padding-left: 30px;">"At the end of 2012 we owned 415 million shares of Tesco, then and now the leading food retailer in the&nbsp;UK and an important grocer in other countries as well. Our cost for this investment was $2.3 billion, and the&nbsp;market value was a similar amount.&nbsp;</p>
<p style="padding-left: 30px;">"In 2013, <strong>I soured somewhat on the company’s then-management</strong> and sold 114 million shares, realizing a&nbsp;profit of $43 million. My leisurely pace in making sales would prove expensive. <strong>Charlie calls this sort of behavior&nbsp;“thumb-sucking.”</strong> (Considering what my delay cost us, he is being kind.)&nbsp;</p>
<p style="padding-left: 30px;">"During 2014, Tesco’s problems worsened by the month. The company’s market share fell, its margins&nbsp;contracted and accounting problems surfaced. In the world of business, bad news often surfaces serially: <strong>You see a&nbsp;cockroach in your kitchen; as the days go by, you meet his relatives</strong>.</p>
<p style="padding-left: 30px;">"We sold Tesco shares throughout the year and are now out of the position. (The company, we should&nbsp;mention, has hired new management, and we wish them well.) Our after-tax loss from this investment was $444&nbsp;million, about 1/5 of 1% of Berkshire’s net worth. <strong>In the past 50 years, we have only once realized an investment&nbsp;loss that at the time of sale cost us 2% of our net worth</strong>. Twice, we experienced 1% losses.</p>
<p style="padding-left: 30px;">"All three of these losses&nbsp;occurred in the 1974-1975 period, when we sold stocks that were very cheap in order to buy others we believed to&nbsp;be even cheaper."</p>
<p>In January this year,&nbsp;Moody's and Standard &amp; Poor's downgraded <a href="http://uk.businessinsider.com/credit-agencies-junk-tesco-2015-1">Tesco's credit rating to junk</a>.&nbsp;Tesco is under investigation from the Serious Fraud Office (SFO) into <a href="http://uk.businessinsider.com/jpmorgan-releases-damaging-note-on-tesco-2014-12">how the group overstated profits by £250 million</a>&nbsp;in September 2014.</p>
<p>The scandal knocked billions off pounds off <a href="https://www.google.co.uk/finance?q=LON%3ATSCO&amp;ei=v0v0VImMCaOZwwPMpYGQCA">Tesco's market value and the stock is at a 12 year low</a>.</p>
<p>Tesco CEO Philip Clarke has now left the group and was replaced by Dave Lewis.</p><p><a href="http://www.businessinsider.com/warren-buffett-annual-letter-on-tesco-and-losses-cockroach-2015-3#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/largest-ice-glacier-calving-filmed-2015-1">This Video Of The Largest Breakage Of Ice From A Glacier Ever Filmed Is Absolutely Frightening</a></p> http://www.businessinsider.com/warren-buffett-endorses-airbnb-2015-2If you're having trouble finding a room in Omaha, Warren Buffett suggests you check out this startup's websitehttp://www.businessinsider.com/warren-buffett-endorses-airbnb-2015-2
Sun, 01 Mar 2015 21:05:00 -0500Jonathan Marino
<p><img style="float:right;" src="http://static2.businessinsider.com/image/5353fb026bb3f7880cc791b2-759-569/warren-buffett-23.png" alt="Warren Buffett" border="0"></p><p>Warren Buffett just dropped his annual Saturday morning knowledge in the form of an annual letter to <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">Berkshire Hathaway shareholders</a>.</p>
<p>And he's also giving major love to one of the hottest startups in the world: Airbnb.&nbsp;</p>
<p>For an investor who has traditionally shunned new technology plays, it is a surprise to hear Buffett talking this way.</p>
<p>Buffett — ever the penny-pinching CEO — extolled Airbnb for attendees of his annual conference, taking place this later this year in Omaha. Airbnb is also <a href="http://techcrunch.com/2015/02/27/airbnb-2/">reportedly in the midst</a> of raising a fresh round of capital that will value the home rental startup at nearly $20 billion, according to TechCrunch.&nbsp;</p>
<p>Here's what he had to say:&nbsp;</p>
<p style="padding-left: 30px;">&nbsp;"We get terrific help at meeting time from literally thousands of Omaha residents and businesses who want you to enjoy yourselves. This year, because we expect record attendance, we have worried about a shortage of hotel rooms. To deal with that possible problem, Airbnb is making a special effort to obtain listings for the period around meeting time and is likely to have a wide array of accommodations to offer. Airbnb's services may be especially helpful to shareholders who expect to spend only a single night in Omaha and are aware that last year a few hotels required guests to pay for a minimum of three nights. Those people on a tight budget should check the Airbnb website."</p>
<p>Here's a look at Airbnb's offerings in Omaha. There are a few hundred rooms available, at as little as $30 a night, right now. That's a big discount compared to what hotel chains in Omaha <a href="http://www.slate.com/blogs/moneybox/2014/04/09/warren_buffett_airbnb_berkshire_hathaway_tries_to_lower_costs_at_its_shareholder.html">charge</a> during his big conference:&nbsp;</p>
<p><img src="http://static2.businessinsider.com/image/54f1cf20eab8eac00aca3353-840-692/screen shot 2015-02-28 at 9.12.47 am.png" alt="Airbnb Omaha rooms" border="0"></p><p><a href="http://www.businessinsider.com/warren-buffett-endorses-airbnb-2015-2#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/excel-index-match-vlookup-video-how-to-2015-2">This is what separates the Excel masters from the wannabes</a></p> http://www.businessinsider.com/warren-buffett-on-conglomerates-and-private-equity-2015-2Warren Buffett fired a huge shot at the private equity business (BRKA, BRKB)http://www.businessinsider.com/warren-buffett-on-conglomerates-and-private-equity-2015-2
Sun, 01 Mar 2015 20:55:00 -0500Myles Udland
<p><img style="float:right;" src="http://static5.businessinsider.com/image/54f1f0ca6bb3f79b2aca3353-1200-924/warren-buffett-david-rubenstein-1.jpg" alt="warren buffett david rubenstein" border="0"></p><p>Berkshire Hathaway is a massive conglomerate.&nbsp;</p>
<p>With a market cap over $300 billion, the company directly owns dozens of businesses and holds huge stakes in many more, some of which include America's largest companies like Coca-Cola, IBM, Wells Fargo, and American Express.&nbsp;</p>
<p>In his <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">50th letter to Berkshire Hathaway shareholders</a>, Buffett addresses this structure, which he says has a terrible reputation with investors, which it "richly deserves."</p>
<p>But of course, it could probably be worse: Berkshire could be a private-equity firm.&nbsp;</p>
<p>In his letter,&nbsp;<span style="line-height: 1.5em;">Buffett writes that the bad reputation for conglomerates is mostly owing to the problems this structure had in the 1960s, when companies were acquiring any and all other businesses in an effort to boost per-share earnings.&nbsp;</span><span style="line-height: 1.5em;">Eventually this scheme fell apart and the conglomerate structure — which often involved a holding company owning disparate businesses under one roof — became out of fashion.</span></p>
<p>But the conglomerate structure, Buffett argues, also gives the current iteration of Berkshire Hathaway a kind of flexibility for acquisitions that you can't get just anywhere.&nbsp;<span style="line-height: 1.5em;">"To put the case simply: If the conglomerate is used judiciously, it is an ideal structure for maximizing long-term capital growth," Buffett writes.&nbsp;</span></p>
<p>And because Berkshire is a conglomerate, Buffett says the company doesn't have an affiliation to any particular business or line of work, with Buffett writing, <strong>"That’s important: If horses had controlled investment decisions, there would have been no auto industry."</strong></p>
<p>This structure has also allowed Berkshire, in Buffett's estimation, to becomes the "home of choice for the owners and managers of many outstanding businesses."</p>
<p>"Families that own successful businesses have multiple options when they contemplate sale," Buffett writes. "Frequently, the&nbsp;best decision is to do nothing. There are worse things in life than having a prosperous business that one understands&nbsp;well. But sitting tight is seldom recommended by Wall Street. (Don’t ask the barber whether you need a haircut.)"</p>
<p>Buffett says that companies looking to sell are often then left with two types of buyers: competitors and private equity firms ("Wall Street buyers," Buffett calls them).&nbsp;</p>
<p>And it is the latter that can be most unpleasant.&nbsp;</p>
<p>Here's Buffett:</p>
<p style="padding-left: 60px;">For some years, these purchasers accurately called&nbsp;themselves "leveraged buyout firms." When that term got a bad name in the early 1990s – remember RJR and&nbsp;<em>Barbarians at the Gate?</em>&nbsp;– these buyers hastily relabeled themselves "private-equity."</p>
<p style="padding-left: 60px;"><strong>The name may have changed but that was all: Equity is dramatically reduced and debt is piled on in&nbsp;virtually all private-equity purchases.</strong> Indeed, the amount that a private-equity purchaser offers to the seller is in part&nbsp;determined by the buyer assessing the maximum amount of debt that can be placed on the acquired company.</p>
<p style="padding-left: 60px;"><strong>Later, if things go well and equity begins to build, leveraged buy-out shops will often seek to re-leverage&nbsp;</strong><strong>with new borrowings.</strong> They then typically use part of the proceeds to pay a huge dividend that drives equity sharply&nbsp;downward, sometimes even to a negative figure.</p>
<p style="padding-left: 60px;"><strong>In truth, "equity" is a dirty word for many private-equity buyers; what they love is debt.</strong> And, because debt&nbsp;is currently so inexpensive, these buyers can frequently pay top dollar. Later, the business will be resold, often to&nbsp;another leveraged buyer. In effect, the business becomes a piece of merchandise.</p>
<p style="padding-left: 60px;"><strong>Berkshire offers a third choice to the business owner who wishes to sell: a permanent home, in which the&nbsp;company’s people and culture will be retained (though, occasionally, management changes will be needed).</strong>&nbsp;<span style="line-height: 1.5em;">Beyond&nbsp;that, any business we acquire dramatically increases its financial strength and ability to grow. Its days of dealing&nbsp;with banks and Wall Street analysts are also forever ended.</span></p>
<p style="padding-left: 60px;"><strong>Some sellers don’t care about these matters. But, when sellers do, Berkshire does not have a lot of&nbsp;competition.</strong></p>
<p><span>To Buffett, Berkshire offers a third, more friendly choice for sellers.</span></p>
<p>In 2014, Berkshire contracted for 31 "bolt-on" acquisitions worth $7.8 billion in all. The company also closed on its acquisition of Van Tuyl Automotive, which has $9 billion in annual sales and brings Berkshire's ownership of companies that would be independently listed in the Fortune 500 to 9.5 (Heinz is the 0.5).&nbsp;</p>
<p>And the company seems ready to find more things to buy. As Buffett writes: <strong>"Our lines are out."&nbsp;</strong></p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2" >Warren Buffett's 50th letter to Berkshire Hathaway shareholders</a></strong></p>
<p><a href="http://www.businessinsider.com/warren-buffett-on-conglomerates-and-private-equity-2015-2#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/invest-warren-buffett-berkshire-hathaway-2015-2">How to invest like Warren Buffett</a></p> http://www.businessinsider.com/warren-buffetts-100-billion-mistake-2015-2In 1967, Warren Buffett made a colossal mistake that diverted $100 billion from him to a group of strangers (BRKA, BRKB)http://www.businessinsider.com/warren-buffetts-100-billion-mistake-2015-2
Sun, 01 Mar 2015 20:45:00 -0500Myles Udland
<p><img style="float:right;" src="http://static6.businessinsider.com/image/54f1c9c669bedd6807ca3351-1200-924/warren-buffett-337.jpg" alt="Warren Buffett" border="0"></p><p>Warren Buffett's <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">50th annual letter</a> to Berkshire Hathaway shareholders is out.&nbsp;</p>
<p>In it, Buffett talks about the company's successes, but also its mistakes. (Mistake #1, in fact, <a href="http://www.businessinsider.com/warren-buffett-a-monumentally-stupid-decision-2015-2">was buying Berkshire Hathaway</a>.)</p>
<p>Buffett's next mistake, however, ended up costing him and his partners $100 billion.&nbsp;</p>
<p>Here's the deal:</p>
<p>In 1967, Buffett bought Omaha-based insurer National Indemnity Company for $8.6 million. Except instead of buying this company for Buffett Partnership Ltd., Buffett's investing vehicle through which he was investing at the time and which held most of his personal wealth, he bought this company through recently acquired Berkshire Hathaway.</p>
<p>Buffett knew he wanted to be in the insurance business, and he knew the NICO deal would be a long-term success. But how he executed the deal was a huge mistake.&nbsp;</p>
<p><strong>"Jack Ringwalt, the owner of NICO, was a long-time friend who wanted to sell to me – me, personally,"</strong> Buffett wrote.</p>
<p>"In&nbsp;no way was his offer intended for Berkshire. So why did I purchase NICO for Berkshire rather than for BPL? <strong>I’ve&nbsp;had 48 years to think about that question, and I’ve yet to come up with a good answer. I simply made a colossal&nbsp;mistake."</strong></p>
<p>And so because Buffett bought this company through his Berkshire holding, and not BPL, NICO became 39%-owned by Berkshire's legacy shareholders, to whom Buffett says he and his partners had no obligation.&nbsp;</p>
<p><strong>"Despite these facts staring me in the face, I opted to marry 100% of an excellent business (NICO) to a 61%-owned terrible business (Berkshire Hathaway), a decision that eventually diverted $100 billion or so from BPL partners to a collection of strangers."</strong></p>
<p>Even so: Berkshire's return over the last 50 years?&nbsp;<span>&nbsp;</span><strong>1,826,163%</strong></p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/warren-buffett-and-discarded-cigar-butt-2015-2" >The way Warren Buffett thinks of a great value is really gross</a></strong></p>
<p><a href="http://www.businessinsider.com/warren-buffetts-100-billion-mistake-2015-2#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/invest-like-warren-buffett-2014-3">How To Invest Like Warren Buffett</a></p> http://www.businessinsider.com/r-berkshire-insurance-superstar-could-fill-buffetts-shoes--2015-3Warren Buffett: When this man came to Berkshire in 1985, 'I immediately knew we had found a superstar'http://www.businessinsider.com/r-berkshire-insurance-superstar-could-fill-buffetts-shoes--2015-3
Sun, 01 Mar 2015 20:11:00 -0500Jennifer Ablan
<p><img style="float:right;" src="http://static1.businessinsider.com/image/54f3492a69bedd0544797d82-1200-924/ajit-jain-berkshire.jpg" alt="ajit jain berkshire" border="0"></p><p>NEW YORK (Reuters) - Warren Buffett, at a news conference in Bengaluru in 2011, lavishly praised Berkshire Hathaway executive Ajit Jain for smoothly running much of the conglomerate's insurance businesses.</p>
<p>Buffett, the billionaire chief executive officer and chairman of Berkshire, said he would also support Jain if ever he decided to seek Buffett’s post.</p>
<p>"He loves what he does, he's not looking to take my job,” Buffett then said about Jain, who was born in the eastern Indian state of Orissa. “If he was, the board of directors would probably put him in there in a minute.”</p>
<p>Speculation has been mounting among Berkshire investors as to who will eventually succeed the 84-year-old Buffett. The field was finally narrowed when, in a letter to shareholders on Saturday, Buffett revealed that he and the board had found his successor, and his second-in-command, Charlie Munger, identified Jain and Greg Abel, the head of Berkshire's energy companies, as front-runners for the top job.</p>
<p>Munger said on Saturday that Jain, 63, and Abel, 52, were each in some important ways, “a better business executive than Buffett."</p>
<p>Jain joined Berkshire in 1986, and Buffett immediately put him in charge of National Indemnity’s small, struggling reinsurance operation. He has since “built this business into a one-of-a-kind giant in the insurance world,” Buffett said in an annual shareholder letter.</p>
<p>In Berkshire’s 2014 shareholder letter posted online on Saturday, Munger said Jain’s reinsurance operation combines capacity, speed, decisiveness and, most important, “brains in a manner unique in the insurance business.” Munger stressed Jain “never exposes Berkshire to risks that are inappropriate in relation to our resources.”</p>
<p>Munger even went so far as to give an example of Jain’s “unmatchable” underwriting skills: If the insurance industry should experience a $250 billion loss from some mega-catastrophe, “Berkshire as a whole would likely record a significant profit for the year because of its many streams of earnings.” &nbsp;</p>
<p>Jain received an undergraduate degree in engineering at the Indian Institute of Technology in Kharagpur in 1972 and worked for International Business Machines Corp in India between 1973 to 1976 before earning a business degree at Harvard University in 1978.</p>
<p>In a 2009 shareholder letter, Buffett proclaimed that “a hugely important event in Berkshire’s history occurred on a Saturday in 1985. Ajit Jain came into our office in Omaha – and I immediately knew we had found a superstar.”</p>
<p>Jeff Matthews, author of "Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett,” said: “Having been Buffett's favorite for decades, Ajit Jain would have the stature to attract companies to the Berkshire fold as Buffett has done.” </p>
<p>&nbsp;</p>
<p>(Editing by Meredith Mazzilli)</p><p><a href="http://www.businessinsider.com/r-berkshire-insurance-superstar-could-fill-buffetts-shoes--2015-3#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/iphone-headphones-tricks-2015-2">14 things you didn't know your iPhone headphones could do</a></p> http://www.businessinsider.com/warren-buffett-a-monumentally-stupid-decision-2015-2Warren Buffett wishes he dumped Berkshire Hathaway back in 1964http://www.businessinsider.com/warren-buffett-a-monumentally-stupid-decision-2015-2
Sun, 01 Mar 2015 20:05:00 -0500Sam Ro
<p><img style="float:right;" src="http://static6.businessinsider.com/image/54f1c0596da81167103b1ae4-1200-924/warren-buffett-334.jpg" alt="warren buffett" border="0"></p><p>In <a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">Warren Buffett's 2014 letter to Berkshire Hathaway shareholders</a>, the Oracle of Omaha looks back at his 50 years at company.</p>
<p>He recalls an event that he characterized as "a monumentally stupid decision."</p>
<p>Believe it or not, it was the aggressive takeover of Berkshire Hathaway, a textile factory that was basically doomed to fail.</p>
<p>The "decision" occurred in 1964 when Buffett, then an owner of just 7% of Berkshire, had the opportunity to sell his stake in the company at a quick profit.</p>
<p style="padding-left: 30px;">On May 6, 1964, Berkshire Hathaway, then run by a man named Seabury Stanton, sent a letter to its shareholders offering to buy 225,000 shares of its stock for $11.375 per share. I had expected the letter; I was surprised by the price.</p>
<p style="padding-left: 30px;">Berkshire then had 1,583,680 shares outstanding. About 7% of these were owned by Buffett Partnership Ltd. (“BPL”), an investing entity that I managed and in which I had virtually all of my net worth. Shortly before the tender offer was mailed, Stanton had asked me at what price BPL would sell its holdings. I answered $11.50, and he said, “Fine, we have a deal.” Then came Berkshire’s letter, offering an eighth of a point less.<strong> I bristled at Stanton’s behavior and didn’t tender</strong>.</p>
<p style="padding-left: 30px;">That was a monumentally stupid decision.</p>
<p>Warren Buffett's entire legacy would've been quite different if he had swallowed that eighth of a point ($0.125) discount and just sold. The $11.275 Stanton was offering was a massive 50% return relative to the $7.50 he paid just two years before in December 1962.</p>
<p>Buffett describes how the New England textile industry was spiraling. His initial rationale for buying shares, however, was that it was selling at a steep discount to its working capital per share and book value per share.</p>
<p>Surprisingly, it seemed as though Buffett allowed his emotions to take over even as the value disappeared.</p>
<p>"Irritated by Stanton's chiseling, I ignored his offer and began to aggressively buy more Berkshire shares," Buffett said.</p>
<p>After 20 years of ups and downs, Buffett pulled the plug on Berkshire's textile business.</p>
<p>"But stubbornness – stupidity? – has its limits," he said. "In 1985, I finally threw in the towel and closed the operation."</p>
<p>And yet, Buffett keeps the name Berkshire. Perhaps it serves as a reminder of what not to do.</p>
<p><a href="http://www.businessinsider.com/warren-buffett-2014-berkshire-hathaway-letter-to-shareholders-2015-2">Click here for more highlights from the letter.</a></p><p><a href="http://www.businessinsider.com/warren-buffett-a-monumentally-stupid-decision-2015-2#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/invest-like-warren-buffett-2014-3">How To Invest Like Warren Buffett</a></p> http://www.businessinsider.com/warren-buffetts-2014-berkshire-hathaway-letter-quotes-2015-3Warren Buffett's new letter to Berkshire Hathaway shareholders summed up in 8 quoteshttp://www.businessinsider.com/warren-buffetts-2014-berkshire-hathaway-letter-quotes-2015-3
Sun, 01 Mar 2015 13:10:00 -0500Luciana Lopez, Jonathan Stempel and Jennifer Ablan
<p><img style="float:right;" src="http://static1.businessinsider.com/image/54f352036bb3f7fe78797d86-1200-924/warren-buffett-dairy-queen-12.jpg" alt="warren buffett dairy queen" border="0"></p><p>NEW YORK (Reuters) - Warren Buffett released his annual letter to Berkshire Hathaway shareholders on Saturday, written with his usual mix of business facts, common-sense advice and showmanship.</p>
<p>This year marks the 50th anniversary of Buffett's time heading the sprawling conglomerate.</p>
<p><strong>On a potential successor:</strong></p>
<p>"Both the board and I believe we now have the right person to succeed me as CEO – a successor ready to assume the job the day after I die or step down. In certain important respects, this person will do a better job than I am doing."</p>
<p><strong>On investing:</strong></p>
<p>"Periodically, financial markets will become divorced from reality – you can count on that. ...ever forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that math is --- zip up your wallet, take a vacation and come back in a few years to buy stocks at cheap prices."</p>
<p><strong>On oversight:</strong></p>
<p>"We do, of course, have an active audit function; no sense being a dammed fool."</p>
<p><strong>On lodging for the May 2 annual meeting in Omaha:</strong></p>
<p>"Airbnb is making a special effort to obtain listings for the period around meeting time and is likely to have a wide array of accommodations to offer. Airbnb's services may be especially helpful to shareholders who expect to spend only a single night in Omaha and are aware that last year a few hotels required guests to pay for a minimum of three nights. That gets expensive. Those people on a tight budget should check the Airbnb website."</p>
<p><strong>On the meeting as spectacle:</strong></p>
<p>"Get up early on Saturday morning. At 6:20 a.m., Norman and Jake, two Texas longhorns each weighing about a ton, will proceed down 10th Street to the CenturyLink. Aboard them will be a couple of our Justin Boot executives, who do double duty as cowboys. Following the steers will be four horses pulling a Wells Fargo stagecoach. Berkshire already markets planes, trains and automobiles. Adding steers and stagecoaches to our portfolio should seal our reputation as America's all-purpose transportation company."</p>
<p><strong>On the GEICO gecko:</strong></p>
<p>"The gecko, I should add, has one particularly endearing quality – he works without pay. Unlike a human spokesperson, he never gets a swelled head from his fame nor does he have an agent to constantly remind us how valuable he is. I love the little guy."</p>
<p><strong>On improving BNSF railroad service:</strong></p>
<p>"Though weather, which was particularly severe last year, will always cause railroads a variety of operating problems, our responsibility is to do whatever it takes to restore our service to industry-leading levels. That can't be done overnight: The extensive work required to increase system capacity sometimes disrupts operations while it is underway. Recently, however, our outsized expenditures are beginning to show results. During the last three months, BNSF's performance metrics have materially improved from last year's figures."</p>
<p><strong>On the future of Berkshire:</strong></p>
<p>"All told, Berkshire is ideally positioned for life after Charlie (Munger) and I leave the scene. We have the right people in place – the right directors, managers and prospective successors to those managers. Our culture, furthermore, is embedded throughout their ranks. Our system is also regenerative. To a large degree, both good and bad cultures self-select to perpetuate themselves. For very good reasons, business owners and operating managers with values similar to ours will continue to be attracted to Berkshire as a one-of-a-kind and permanent home."</p>
<p>(Reporting by Luciana Lopez, Jonathan Stempel and Jennifer Ablan)</p><p><a href="http://www.businessinsider.com/warren-buffetts-2014-berkshire-hathaway-letter-quotes-2015-3#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/iphone-headphones-tricks-2015-2">14 things you didn't know your iPhone headphones could do</a></p> http://www.businessinsider.com/r-buffett-dont-expect-another-50-years-of-outperformance-at-berkshire-2015-2Warren Buffett: Berkshire Hathaway's numbers have become too bighttp://www.businessinsider.com/r-buffett-dont-expect-another-50-years-of-outperformance-at-berkshire-2015-2
Sat, 28 Feb 2015 17:15:00 -0500Luciana Lopez, Jonathan Stempel and Jennifer Ablan
<p><img style="float:right;" src="http://static1.businessinsider.com/image/54f3462aecad04117fd36e17-1199-899/warren-buffett-349.jpg" alt="warren buffett" border="0"></p><p>NEW YORK (Reuters) - In his 50 years at the helm of Berkshire Hathaway Inc, Warren Buffett has transformed a failing textile company into a sprawling conglomerate that has vastly outperformed most of the rest of corporate America.</p>
<p>But he now says: Do not expect a repeat of that outperformance in the next 50. In the 84-year-old's annual shareholder letter released on Saturday, Buffett said Berkshire has grown so large - 751,000 times its original net worth per share - that the future pace of gains "will not come close" to those of the past.</p>
<p>"The numbers have become too big," Buffett wrote. "I think Berkshire will outperform the average American company, but our advantage, if any, won't be great."</p>
<p>Within 10 to 20 years, Buffett said, Berkshire's girth could require whoever then runs the Omaha, Nebraska-based company to consider steps he has resisted, such as paying dividends or conducting "massive" share repurchases.</p>
<p style="padding-left: 30px;">"Eventually – probably between ten and twenty years from now – Berkshire’s earnings and capital resources will reach a level that will not allow management to intelligently reinvest all of the company’s earnings. At that time our directors will need to determine whether the best method to distribute the excess earnings is through dividends, share repurchases or both. If Berkshire shares are selling below intrinsic business value, massive repurchases will almost certainly be the best choice. You can be comfortable that your directors will make the right decision."</p>
<p>Buffett, also addressing one of the more pressing topics at Berkshire, said he and his board of directors "believe we now have the right person to succeed me as CEO," likely for a decade or more, and who in some respects "will do a better job than I am doing."</p>
<p><img class="float_left" src="http://static3.businessinsider.com/image/54f347836da8111a24473802-1200-1000/rtxep6v.jpg" alt="ajit jain berkshire" border="0">While Buffett did not name that person, Berkshire Vice Chairman Charlie Munger, 91, said Greg Abel and Ajit Jain, two top Buffett lieutenants, would be prime candidates.</p>
<p>Abel, 52, runs Berkshire Hathaway Energy. Jain, 63, has been Buffett's top insurance executive for three decades.</p>
<p>A successor could also be female: Buffett said "gender should never decide who becomes CEO."</p>
<p>And Todd Combs and Ted Weschler, who run some Berkshire investments, "can be of particular help to the CEO in evaluating acquisitions," he added.</p>
<p>"You've got such good candidates," said Thomas Russo, a principal at Gardner, Russo &amp; Gardner, which invests 12 percent of its $10 billion of assets in Berkshire. "I think they'll adopt a different capital structure approach, which will include a healthy, healthy large dividend."</p>
<h3>OPERATING RESULTS MISS ESTIMATES</h3>
<p>Buffett is preparing in May to celebrate 50 years of running Berkshire, whose market value is now $363 billion.</p>
<p>On Saturday, Berkshire also reported a 17 percent drop in fourth-quarter profit, to $4.16 billion, or $2,529 per Class A share, from $4.99 billion, or $3,035, a year ago, as investment gains and results from insurance underwriting declined.</p>
<p>Operating profit rose 5 percent to $3.96 billion, or $2,412 per share, from $3.78 billion, or $2,297.</p>
<p>For all of 2014, profit rose 2 percent to $19.87 billion, while operating profit increased 9 percent to $16.55 billion. Revenue rose 7 percent $194.67 billion.</p>
<p>Book value per share, which Buffett considers a good measure of Berkshire's worth, rose 8.3 percent to $146,186 but lagged gains in the Standard &amp; Poor's 500 for the fifth time in six years.</p>
<p>Despite the big numbers, Berkshire had some problems.</p>
<p>Buffett lamented the performance of the BNSF railroad, saying it "disappointed many of its customers" with congestion on its rail lines caused by bad weather, amid rising oil shipments and a bumper grain harvest.</p>
<p>He also said he was "embarrassed" by taking too long to exit a $2.3 billion investment in Tesco Plc, a British retailer that became mired in an accounting scandal.</p>
<p>Berkshire lost $444 million on Tesco, but Buffett said that's just 0.2 percent of its net worth.</p>
<h3>MOTHER LODE OF OPPORTUNITIES</h3>
<p>Berkshire owns more than 80 companies, such as Geico insurance and Dairy Queen ice cream, and $117.5 billion of equity investments in such companies as Wells Fargo &amp; Co, Coca-Cola Co, American Express Co and IBM Corp.</p>
<p>Buffett remains on the prowl for acquisitions, and with $63.27 billion of cash could make big purchases, which he calls "elephants," while preserving a $20 billion cash cushion.</p>
<p>Despite spending $7.8 billion on 31 acquisitions in 2014, Berkshire has not bought an elephant since paying $12.25 billion to buy half of ketchup maker H.J. Heinz Co in 2013.</p>
<p>And while Buffett has said he may shop more in Germany, after on Feb. 20 agreeing to buy a German motorcycle accessories retailer, Berkshire's main focus will remain at home.</p>
<p>"Though we will always invest abroad as well, the mother lode of opportunities runs through America," he wrote.</p>
<p>Buffett's letter retained the folksy tone that have helped make him popular among investors.</p>
<p>Talking about his See's Candies business, which requires little capital investment, Buffett compared the company's profits to "rabbits breeding."</p>
<p>And Buffett said that at Berkshire's annual meeting last year, part of a weekend he calls "Woodstock for Capitalists," shareholders bought 10,000 bottles of Heinz ketchup with Buffett or Munger on the labels. (Buffett's cost $2, Munger's $1.50.)</p>
<p>This year, Buffett said Heinz will also be selling mustard as well as ketchup. "Buy both!" he exhorted.</p>
<p>&nbsp;</p>
<p>(Reporting by Jennifer Ablan, Luciana Lopez and Jonathan Stempel in New York; Editing by Steve Orlofsky)</p><p><a href="http://www.businessinsider.com/r-buffett-dont-expect-another-50-years-of-outperformance-at-berkshire-2015-2#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/iphone-headphones-tricks-2015-2">14 things you didn't know your iPhone headphones could do</a></p> http://www.businessinsider.com/warren-buffetts-investing-strategy-2013-12Why you will never be able to invest like Warren Buffetthttp://www.businessinsider.com/warren-buffetts-investing-strategy-2013-12
Sat, 28 Feb 2015 12:54:00 -0500Sam Ro
<p><img style="float:right;" src="http://static1.businessinsider.com/image/528540e8ecad04c029f92331-480-/warren-buffett-53.jpg" border="0" alt="warren buffett" width="480"></p><p>Warren Buffett is arguably the greatest investor of all time.</p>
<p>Unlike some other famous investors who swing for the fences and hit home runs every once in a while, Buffett is known for his low-volatility returns over a very long period.</p>
<p>Indeed, <a href="http://www.nber.org/papers/w19681">a new NBER paper</a> via <a href="https://twitter.com/counterparties/status/407534335189716993">Counterparties</a> shows that "Buffett's returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combine with a focus on cheap, safe, quality stocks."</p>
<p>In other words, he buys boring stocks that offer steady, low returns, but he amplifies those returns by betting with borrowed money.</p>
<p>"We estimate that Buffett's leverage is about 1.6-to-1 on average," write authors Andrea Frazzini, David Kabiller and Lasse H. Pedersen. They've <a href="http://www.businessinsider.com/how-warren-buffett-really-makes-money-2013-3">written about this before</a>.</p>
<p>So can you copy Buffett's investing strategy?</p>
<p>The short answer is yes and no.</p>
<p>Anyone can invest in boring stocks. But not everyone can borrow as cheaply as Buffett and Berkshire Hathaway.</p>
<p>The authors identify at least four reasons why Buffett is able to borrow so cheaply (emphasis added):</p>
<p style="padding-left: 30px;">In addition to considering the magnitude of Buffett’s leverage, it is also interesting to consider his sources of leverage including their terms and costs. <strong>Berkshire’s debt has benefitted from being highly rated, enjoying a AAA rating from 1989 to 2009</strong>. As an illustration of the low financing rates enjoyed by Buffett, Berkshire issued the first ever negative-coupon security in 2002, a senior note with a warrant.</p>
<p style="padding-left: 30px;">Berkshire’s more anomalous cost of leverage, however, is due to <strong>its insurance float.</strong> <strong>Collecting insurance premia up front and later paying a diversified set of claims is like taking a “loan.” Table 3 shows that the estimated average annual cost of Berkshire’s insurance float is only 2.2%, more than 3 percentage points below the average T-bill rate</strong>. Hence, Buffett’s low-cost insurance and reinsurance business have given him a significant advantage in terms of unique access to cheap, term leverage. We estimate that 36% of Berkshire’s liabilities consist of insurance float on average.</p>
<p style="padding-left: 30px;">Based on the balance sheet data, <strong>Berkshire also appears to finance part of its capital expenditure using tax deductions for accelerated depreciation of property, plant and equipment as provided for under the IRS rules</strong>. E.g., Berkshire reports $28 Billion of such deferred tax liabilities in 2011 (page 49 of the Annual Report). Accelerating depreciation is similar to an interest-free loan in the sense that (i) Berkshire enjoys a tax saving earlier than it otherwise would have, and (ii) the dollar amount of the tax when it is paid in the future is the same as the earlier savings (i.e. the tax liability does not accrue interest or compound).</p>
<p style="padding-left: 30px;">Berkshire’s remaining liabilities include accounts payable and derivative contract liabilities. Indeed, <strong>Berkshire has sold a number of derivative contracts, including writing index option contracts on several major equity indices, notably put options, and credit default obligations</strong> (see, e.g., the 2011 Annual Report). Berkshire states:</p>
<p style="padding-left: 60px;">We received the premiums on these contracts in full at the contract inception dates ... With limited exceptions, our equity index put option and credit default contracts contain no collateral posting requirements with respect to changes in either the fair value or intrinsic value of the contracts and/or a downgrade of Berkshire’s credit ratings.<br>– Warren Buffett, Berkshire Hathaway Inc., Annual Report, 2011.</p>
<p style="padding-left: 30px;">Hence, Berkshire’s sale of derivatives may both serve as a source of financing and as a source of revenue as such derivatives tend to be expensive (Frazzini and Pedersen (2012)). Frazzini and Pedersen (2012) show that investors that are either unable or unwilling to use leverage will pay a premium for instruments that embed the leverage, such as option contracts and levered ETFs. Hence, Buffett can profit by supplying this embedded leverage as he has a unique access to stable and cheap financing.</p>
<p>So, unless your a multibillion AAA-rated insurance conglomerate, you're not going to be able to invest like Buffett.</p><p><a href="http://www.businessinsider.com/warren-buffetts-investing-strategy-2013-12#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/nationwide-insurance-industry-loss-ratio-2015-2">Nationwide's Super Bowl commercial about dead children is about corporate profits ... in a way that we can all appreciate</a></p> http://www.businessinsider.com/r-buffett-says-sprawl-is-good-but-may-not-be-good-enough-2015-2Berkshire Hathaway is 'sprawling', but it's getting too big to grow like it used tohttp://www.businessinsider.com/r-buffett-says-sprawl-is-good-but-may-not-be-good-enough-2015-2
Sat, 28 Feb 2015 11:55:00 -0500Jonathan Stempel
<p><img style="float:right;" src="http://static3.businessinsider.com/image/54f1f31d5afbd3081a8b4567-450-300/buffett-says-sprawl-is-good-but-may-not-be-good-enough.jpg" alt="Berkshire Hathaway CEO Warren Buffett bites into an ice cream during a trade show at the company's annual meeting in Omaha, Nebraska May 3, 2014. REUTERS/Rick Wilking " border="0"></p><p>NEW YORK (Reuters) - Warren Buffett wants to buy more businesses to add to Berkshire Hathaway Inc's "sprawl," but cautioned it may not keep the company he has run for 50 years from evolving into something rarely used to describe it up until now: average.</p>
<p>In his annual letter to shareholders, Buffett on Saturday said Berkshire's huge balance sheet gives him the power to funnel capital to some of the more than 80 operating units that deserve it, while its decentralized structure makes it the "home of choice" for many businesses looking to sell.</p>
<p>"Berkshire is now a sprawling conglomerate, constantly trying to sprawl further," Buffett wrote. "In an operating sense, Berkshire is not a giant company, but rather a collection of large companies."</p>
<p>That sprawl, including 9-1/2 businesses that would on their own make the Fortune 500 - Berkshire owns half of ketchup maker H.J. Heinz Co for instance - may limit its power to outperform.</p>
<p>Indeed, that power has been waning.</p>
<p>Berkshire's book value per share, Buffett's favored growth measure, has after taxes risen less than the Standard &amp; Poor's 500 &lt;.SPX&gt; index including dividends, pre-tax, in five of the last six calendar years, after dwarfing the index in the prior 44 years.</p>
<p>Its stock price has also slightly lagged the index since the end of 2008, the company said.</p>
<p>"The bad news is that Berkshire's long-term gains - measured by percentages, not by dollars - cannot be dramatic and will not come close to those achieved in the past 50 years," Buffett wrote. "The numbers have become too big. I think Berkshire will outperform the average American company, but our advantage, if any, won't be great."</p>
<h3>MORE ACQUISITIONS</h3>
<p>Buffett still wants Berkshire to make acquisitions in the $5 billion to $20 billion range. And purchases could be even bigger if he teams with partners, such as Brazil's 3G Capital.</p>
<p>That firm bought the rest of Heinz and got $3 billion from Berkshire to help its Burger King unit buy Canadian donut chain Tim Hortons, creating Restaurant Brands International Inc &lt;qsr.to&gt;.</p>
<p>Buffett said he expects to work with 3G on more activities.</p>
<p>Still, Berkshire is sitting on $63.27 billion of cash and its most recent purchases have been comparatively small.</p>
<p>They have included the AltaLink electric transmission unit in Canada, and Van Tuyl Automotive, the fifth-largest U.S. auto retailer. Berkshire also plans to acquire Procter &amp; Gamble Co's &lt;pg.n&gt; Duracell battery unit later this year.</p>
<p>Once in Berkshire's stable, those companies will likely stay.</p>
<p>Though Buffett does shed or give up some businesses - the textile company that gave Berkshire its name was closed in 1985 - Buffett said spinoffs "make no sense," citing tax reasons and a belief that businesses are worth more within Omaha, Nebraska-based Berkshire than on their own.</p>
<p>Buffett said his eventual successor at Berkshire, whenever he or she takes the job - "gender should never decide" - will need to monitor those businesses closely, and as Berkshire grows larger fend off the "arrogance, bureaucracy and complacency" that can destroy seemingly indestructible companies.</p>
<p>"For very good reasons, business owners and operating managers with values similar to ours will continue to be attracted to Berkshire as a one-of-a-kind and permanent home," Buffett wrote, italicizing "permanent" for emphasis.</p>
<p>&nbsp;</p>
<p>(Editing by Jennifer Ablan and David Holmes)</p><p><a href="http://www.businessinsider.com/r-buffett-says-sprawl-is-good-but-may-not-be-good-enough-2015-2#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/iphone-headphones-tricks-2015-2">14 things you didn't know your iPhone headphones could do</a></p>